The euro and franc strengthened as slides in Asian stocks and currencies signaled investor repatriation of assets from emerging markets.
The dollar extended a drop against the majority of its most-traded peers after a measure of U.S. economic activity was weaker than forecast. The yen strengthened for the first time in three days against the dollar. India’s rupee fell to a record and Indonesia’s rupiah slumped to the lowest level since April 2009 on concern funds will flow out of Asian markets as the Federal Reserve reduces its bond-purchase program.
“There has been a portfolio flow shift away from emerging markets, generally speaking, given some of the moves in non-Japan Asian currencies,” Brad Bechtel, the managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. Today’s euro “move had an element of a barrier run. There was a barrier at $1.3450 in the options space. People definitely tried to gun that down and they were successful at doing that.”
Barriers refer to price levels where options or other orders are clustered.
The euro gained 0.6 percent to $1.3417 as of 5 p.m. New York time and touched $1.3452, the highest level since Feb. 14. The common currency rose 0.3 percent to 130.51 yen. Japan’s currency appreciated 0.3 percent to 97.27 per dollar after advancing to 95.81 on Aug. 8, the strongest since June 19. Switzerland’s franc climbed 0.7 percent to 91.73 centimes against the dollar. It advanced 0.1 percent to 1.2309 per euro.
The MSCI Asia Pacific Index of shares fell 1.7 percent. The Standard & Poor’s 500 Index of U.S. stocks rose 0.4 percent.
The euro and pound are being supported by the broader global focus on diverging performance between emerging- and developed-market currencies, said Ian Stannard, strategist at Morgan Stanley in London. That strength won’t last as attention turns to the Fed, he said.
Gains in the euro will likely be limited to $1.3460, he said, while sterling is likely to top out at $1.5750, from $1.5668.
The greenback declined after the Federal Reserve Bank of Chicago’s national activity index for July was minus 0.15 from a revised minus 0.23 in June. A Bloomberg survey forecast a reading of minus 0.10. A number below zero indicates below-trend growth in the national economy.
The Fed will publish minutes of its July meeting tomorrow that may offer clues as to whether policy makers will start reduce their $85 billion of monthly bond purchases as soon as their gathering in September. The Federal Open Market Committee holds its next meeting on Sept. 17-18.
“It feels like it’s still a guessing game for the Fed tapering,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc. (8411), said in a phone interview. “It’s been fairly data-stagnant the last couple of days. You haven’t really seen anything in particular more than the dollar just taking a beating.”
Trading in over-the-counter foreign-exchange options totaled $32 billion, compared with $28 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $5.6 billion, the largest share of trades at 17 percent. Options on the Australian dollar-U.S. dollar rate totaled $5 billion, or 15 percent.
Dollar-yen options trading was 18 percent less than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Aussie-greenback options trading was 104 percent more than average.
Japan’s currency rose 2.6 percent in the past month, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The euro gained 1.1 percent, while the dollar dropped 1.2 percent.
“The weakness in some of the emerging-Asian currencies and modest strength in the yen would be consistent with a major risk aversion,” Robert Sinche, global strategist at Pierpont Securities Holdings LLC in Stamford, Connecticut, said in a telephone interview. As for the euro and franc, “you have European investors who are pulling money back from emerging-market exposure. Apparently there was a lot of that.”
India’s rupee dropped 0.2 percent to 63.23 per dollar after slumping to a record 64.12.
Indonesia’s currency fell 1.9 percent to 10,685 per dollar after sliding to 10,728, the weakest since April 2009. The rupiah is the only currency within an expanded basket of major currencies to have declined against the dollar every August for nine years. It’s down 4.5 percent since July 31.
The Australian and New Zealand currencies slid after comments from the nations’ central banks.
Minutes released today of the Reserve Bank of Australia’s Aug. 6 meeting signaled further interest-rate cuts remain a possibility.
Reserve Bank of New Zealand Governor Graeme Wheeler announced lending restrictions to curtail house prices and said the currency is “over-valued relative to what would be sustainable long-term.”
The kiwi tumbled 1.1 percent to 79.79 U.S. cents, while the Aussie lost 0.4 percent to 90.71 cents.
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